Tax Court Addresses Gifts of Property

With proper substantiation, gifts of property can be tax deductible.

Church Finance Today

Tax Court Addresses Gifts of Property

With proper substantiation, gifts of property can be tax deductible.

A taxpayer (Jerry) claimed a charitable contribution deduction of $3,700 on his federal tax return based on property that he allegedly donated to a church-affiliated children’s home. He claimed that he purchased a number of items which he then gave directly to the home. As substantiation for these contributions, he provided a list with the various items along with the prices that he paid for them. No individual item cost more than $90. He also provided a letter from the charity acknowledging the receipt of “new gym shoes, sweaters, boots, and food supplies”. The items on his list, primarily consisting of children’s athletic shoes, corresponded to this description.

The IRS audited Jerry’s tax return, and denied the $3,700 charitable contribution deduction. It asserted that Jerry failed to produce adequate documentation for these alleged donations of property, such as receipts for the new shoes he donated. The Tax Court concluded that the list of donated items provided by Jerry, and the written acknowledgment from the children’s home, met the substantiation requirements mandated by the tax code despite his failure to maintain individual receipts.

This ruling demonstrates that donations of low-cost items of property can be substantiated by (1) the donor’s itemized listing of the donated property, including prices paid, and (2) a receipt issued by the charity that includes a description of each item of donated property. Of course, it is the donor’s responsibility to determine the value of donated property. A church should never act as an appraiser of donated property, and so a receipt issued to a person who donates an item of low-cost property (less than $250) should simply reflect the donor’s name, the charity’s name, the date of the gift, and a description of the donated property.

For contributions of property valued by a donor at $250 or more (including the combined value of similar items of donated property) more stringent substantiation rules apply. These rules are all summarized in a convenient table at the end of chapter 8 in Richard Hammar’s 2004 Church & Clergy Tax Guide.

There is one additional aspect of this case that should be noted. Jerry purchased items for the children’s home and then claimed a charitable contribution deduction for his purchases. This raises the common question of whether church members can claim charitable contribution deductions for items they purchase on behalf of their church. In general, the answer is yes. A common example is food purchased for a Sunday School class. Is a member entitled to a contribution deduction for such purchases? This case suggests that the answer is yes, so long as the member provides the church with an itemized list of purchased products (including the price paid for each item). Receipts for all such purchases should be requested by the church, although this case illustrates that receipts may not be necessary with respect to such low-cost items. Mudd v. Commissioner, T.C. Summary Opinion 2004-1 (2004).

This article first appeared in Church Treasurer Alert, February 2004.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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